What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-02 compared with 2021-03-09 · 420 added, 356 removed, 737 unchanged (51% of the section changed)

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and Subsidiaries:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Consolidated Balance Sheets as of December 31, 2020 and 2021

Consolidated Statements of Income for the years ended December 31, 2019, 2020, and 2021

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2020, and 2021

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2020, and 2021

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We have audited the accompanying consolidated balance sheets of American Public Education, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2020, the related consolidated statements of income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill – HCN Reporting Unit – Refer to Notes 2 and 7 to the financial statements

Accounting for Acquisition of Rasmussen University — Refer to Note 3 to the financial statements

Critical Audit Matter Description

In connection with the Company’s November 1, 2013 acquisition of Hondros College of Nursing (HCN), the Company recorded $38.6 million of goodwill, representing the excess of the purchase price over the amount assigned to the new assets acquired and the fair value assigned to identified intangible assets.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

Management performs its annual impairment analysis for goodwill on its elected assessment date of October 31, or more frequently, if certain events or circumstances indicate that goodwill might be impaired.

In 2020, Management performed its annual assessment as of October 31, 2020.

The Company concluded that the fair value of the HCN reporting unit exceeded its carrying value by $13.7 million, or 37.1%.

Given the significant estimates and assumptions made by management to estimate the fair value of the HCN reporting unit, and the sensitivity of the estimated fair value to changes in those estimates and assumptions, performing audit procedures to

evaluate the reasonableness of management's estimates and assumptions utilized in its impairment analyses, particularly the revenue growth rates and the selection of discount rates, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

As discussed in Note 3 of the financial statements, the Company acquired Rasmussen University on September 1, 2021 for a total purchase price of $325.5 million.

The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, resulting in goodwill of approximately $216.9 million.

Given the significant estimates and assumptions made by management to estimate the fair value of net identifiable assets and the sensitivity of the estimated fair value to changes in those estimates and assumptions, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions utilized in its fair value analysis, particularly the revenue growth rates and the selection of discount rates, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

These assumptions related to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions.

As part of the acquisition of Rasmussen we assessed the reasonableness of managements assumptions used to determine the purchase price allocated to identifiable assets.

The fair value of the identified intangible assets including the trade name, student roster, and lead conversions were determined using the income-based approach.

The fair value of curricula and accreditation, licensing, and Title IV identified intangible assets were determined using the cost approach.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the revenue growth rates and the selection of discount rates and valuation multiples for the HCN reporting unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of HCN, such as controls related to management’s revenue growth rates and the selection of the discount rates and valuation multiples.

• We evaluated the reasonableness of management’s growth rates by comparing management’s rates with:

We tested the effectiveness of internal controls over management’s valuation analysis, including those over the forecasts of future sales and selection of the discount rate.

To test the estimated fair value of the net identifiable assets, we evaluated the appropriateness of the valuation methodologies utilized and evaluated the reasonableness of the significant assumptions, such as growth rates, by comparing management’s estimates with:

▪ Historical results;

◦ prior forecasts;

▪ internal communications to the Company’s management and the board of directors;

▪ forecasted information included in the Company’s press releases as well as in analyst and industry reports of the Company and companies in its peer group.

• We considered the impact of changes in the regulatory environment on management’s forecasts.

We also considered the impact of the COVID-19 Global Pandemic and inquired of the effects of the pandemic on the Company’s enrollments and forecasts.

• We evaluated the impact of changes in management’s forecasts from the October 31, 2020 annual measurement date to December 31, 2020.

With the assistance of our fair value specialists, we evaluated the valuation methodology and discount rates used, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.

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Operating lease assets, net 8,743 77,943

Investments 10,502 10,495

Intangible assets, net 3,721 85,082

Goodwill 26,563 243,486

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Operating lease liabilities, current 2,392 13,705

Long-term debt, current — 8,750

Total current liabilities 55,058 83,678

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Deferred income taxes 2,580 5,059

Long-term debt, net — 151,771

Total liabilities 64,093 309,996

Commitments and contingencies (Notes 8 and 12)

Commitments and contingencies (Note 12)

Stockholders’ equity:

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Additional paid-in capital 195,597 286,385

Accumulated other comprehensive income — 108

Retained earnings 111,180 128,932

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Total costs and expenses 273,514 297,028 388,432

Income from operations before interest income and income taxes 32,526 12,756 24,757

Interest income, net 2,915 3,908 1,092

Income from operations before interest and income taxes 12,756 24,757 30,371

Interest income (expense) 3,908 1,092 ( 4,277 )

Income from operations before income taxes 16,664 25,849 26,094

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AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Comprehensive Income

2019 2020 2021

(In thousands)

Net income $ 10,013 $ 18,822 $ 17,752

Other comprehensive income, net of tax:

Unrealized gain on hedging derivatives, net of taxes — — 108

Comprehensive income $ 10,013 $ 18,822 $ 17,860

The accompanying notes are an integral part of these consolidated statements.

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Stockholders’ Equity

(In thousands)

Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity

Preferred Stock Common Stock

Shares Amount Shares Amount

Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total Stockholders’ Equity

Shares Amount

Balance as of December 31, 2018 16,425 $ 164 $ 187,172 — $ 133,930 $ 321,266

Impact of adoption of ASC 606

— — — — — ( 278 ) ( 278 )

Issuance of common stock under employee benefit plans 252 3 ( 3 ) — — —

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Stock-based compensation — — 5,960 — — 5,960

Repurchased and retired shares of common stock ( 1,416 ) ( 14 ) — — ( 37,982 ) ( 37,996 )

Net income — — — — 10,013 10,013

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Balance as of December 31, 2020 14,809 148 195,597 — 111,180 306,925

Issuance of common stock in public offering 3,680 37 86,168 — — 86,205

Issuance of common stock under employee benefit plans 319 3 ( 3 ) — — —

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Stock-based compensation — — 7,654 — — 7,654

Repurchased and retired shares of common stock — — ( 548 ) ( 5 ) — ( 13,603 ) ( 13,608 )

Unrealized gain on hedging derivatives, net of taxes — — — 108 — 108

Net income — — — — 17,752 17,752

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Depreciation and amortization 15,596 12,984 17,832

Amortization of debt issuance costs — — 885

Stock-based compensation 5,960 7,075 7,654

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Prepaid expenses ( 1,149 ) 320 ( 614 )

Income tax receivable ( 898 ) ( 859 ) 1,757

Income tax receivable/payable ( 859 ) 1,935 ( 5,481 )

Operating lease assets, net 120 ( 16 ) 2,606

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Accrued liabilities 3,672 3,612 ( 4,432 )

Income tax payable ( 1,710 ) — 178

Deferred revenue and student deposits ( 884 ) 4,678 ( 23,061 )

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Investing activities

Cash paid for acquisition, net of cash acquired — — ( 325,509 )

Capital expenditures ( 7,255 ) ( 4,926 ) ( 11,828 )

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Cash paid for repurchase of common/restricted stock ( 40,506 ) ( 15,705 ) ( 3,032 )

Cash received from issuance of common stock — — 86,205

Cash paid for principal on borrowings — — ( 2,188 )

Cash received from borrowings — — 175,000

Cash paid for debt issuance costs — — ( 13,644 )

Net cash used in financing activities ( 40,506 ) ( 15,705 ) 242,341

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Supplemental disclosures of cash flow information

Interest paid $ — $ — $ 3,676

Income taxes paid $ 8,019 $ 5,898 $ 7,464

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Nature of Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to approximately 92,500 students through two subsidiary institutions:

• American Public University System, Inc., or APUS, which provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU.

APUS is institutionally accredited by the Higher Learning Commission.

• National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, which provides nursing education to students enrolled at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities.

In April 2021, HCN will begin offering classes at a new campus in Akron, Ohio.

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to students through the following subsidiary institutions:

• American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU.

APUS is institutionally accredited by the Higher Learning Commission, or HLC, as an Open Pathways institution.

• Rasmussen College, LLC, which is referred to herein as Rasmussen University, or RU, a nursing- and health sciences-focused institution, provides postsecondary education to students at its 23 campuses across six states and online.

The Company completed the acquisition of Rasmussen University, or the Rasmussen Acquisition, on September 1, 2021, or the Closing Date.

Please refer to “Note 3.

Acquisition Activity” for more information on this acquisition.

The Consolidated Financial Statements do not include the operating results or financial position of RU for any periods prior to the Closing Date.

RU is institutionally accredited by HLC as an Open Pathways institution.

• National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio, including a campus in Akron that opened in April 2021, and one campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities.

HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES.

In March 2020, in response to the novel coronavirus COVID-19 global pandemic, HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs.

HCN later fully reopened its campuses, using smaller in person classes with screening, social distancing, and masking requirements.

There can be no assurance that HCN will not need to further limit campus interactions or close its campuses in response to the COVID-19 pandemic or as a result of local regulations.

The Company’s institutions are licensed or otherwise authorized, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the U.S.

Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

The Company’s operations are organized into two reportable segments:

• American Public Education Segment, or APEI Segment.

This segment reflects the operational activities at APUS, other corporate activities, and minority investments.

The Company’s institutions are licensed or otherwise authorized to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

During the third quarter of 2021, the Company revised its reportable segments, as discussed further in “Note 14.

Segment Information”.

Prior period segment disclosures have been restated to conform to the current period presentation.

The Company’s operations are organized into three reportable segments:

• American Public University System, or APUS Segment.

This segment reflects the operational activities of APUS.

• Rasmussen University Segment, or RU Segment .

This segment reflects the operational activities of RU.

• Hondros College of Nursing Segment, or HCN Segment.

This segment reflects the operational activities of HCN.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which primarily includes unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment.

Significant Accounting Policies

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The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Certain prior year amounts have been reclassified for comparative purposes to conform with the 2021 presentation.

Specifically, at December 31, 2021, Intangible assets, net are presented on the Consolidated Balance Sheet as a separate financial statement line item, and investments are no longer separately presented and are now presented in other assets, net.

Prior to December 31, 2021, intangible assets, net, were presented in other assets, net on the Consolidated Balance Sheet, and investments were presented as a separate financial statement line item.

Business combinations.

The Company accounts for business combinations in accordance with FASB, ASC 805, Business Combinations , which requires the acquisition method to be used for all business combinations.

Under ASC 805, the assets and liabilities of an acquired company are reported at business fair value along with the fair value of acquired intangible assets at the date of acquisition.

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed, and the fair value assigned to identifiable intangible assets.

On September 1, 2021, the Company completed the Rasmussen Acquisition.

Accordingly, the financial results of the Company as of and for any periods ended prior to September 1, 2021 do not include the financial results of RU and therefore are not directly comparable.

Principles of consolidation.

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The Company considers all short-term highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Cash and cash equivalents consist of demand deposits with financial institutions, money market funds invested in securities backed by the U.S.

government, and U.S.

Cash and cash equivalents consist of demand deposits with financial institutions, money market funds, and U.S.

Treasury bills.

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Cash and cash equivalents include funds held for students for unbilled educational services that were received from Title IV programs.

As a trustee of these Title IV program funds, the Company is required to maintain and restrict

these funds pursuant to the terms of the program participation agreement with ED.

Restricted cash on the Company’s Consolidated Balance Sheets as of December 31, 2019 and 2020 was $ 1.3 million and $ 1.2 million, respectively.

As a trustee of these Title IV program funds, the Company is required to maintain and restrict these funds pursuant to the terms of the program participation agreement with ED.

Cash and cash equivalents also includes amounts to secure letters of credit, including $ 24.2 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of the ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $ 0.6 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for a RU leased campus.

Restricted cash on the Company’s Consolidated Balance Sheets as of December 31, 2020 and 2021, excluding the restricted certificates of deposit, was $ 1.2 million and $ 2.2 million, respectively.

Total restricted cash as of December 31, 2020 and 2021 is $ 1.2 million and $ 27.0 million, respectively.

Accounts receivable.

The Company accounts for receivables in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification Subtopic 310, or ASC 310, Receivables.

The Company accounts for receivables in accordance with FASB ASC 310, Receivables.

Course tuition is recorded as accounts receivable and deferred revenue at the time students begin a course or term.

Students may remit tuition payments at any time or they may elect various other payment options with payment terms extending beyond the start of the course or term.

Students may remit tuition payments upon enrollment or they may elect various other payment options with payment terms extending beyond the start of the course or term.

These other payment options include payments by sponsors, financial aid, alternative loans, or tuition assistance programs that remit payments directly to the subsidiary.

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When a student remits payment after a course or term has begun, accounts receivable is reduced.

If payment is made prior to the start of a course or term, the payment is recorded as a student deposit, and the student is provided access to the online classroom when courses start, in the case of APUS, or allowed to start the term, in the case of HCN.

If a payment option is confirmed, the student is allowed to start the course or term.

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Recoveries of receivables previously written off are recorded when received.

APUS does not charge interest on past due accounts receivable.

APUS and RU do not charge interest on past due accounts receivable.

HCN charges interest on payment plans when a student leaves the payment plan program upon graduation or exits the program.

Property and equipment.

All property and equipment is carried at cost less accumulated depreciation and amortization.

All property and equipment is carried at cost less accumulated depreciation, except the acquired assets of RU, which were recorded at fair value at the Closing Date.

Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets.

Leasehold improvement depreciation is calculated on a straight-line basis over the lesser of the estimated useful life of the asset or the term of the lease.

Leasehold improvement depreciation is calculated on a straight-

line basis over the lesser of the estimated useful life of the asset or the term of the lease.

For tax purposes, different methods are used.

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The ROU asset includes all lease payments and excludes lease incentives.

The Company adopted the following practical expedients and elected the following accounting policies related to this standard:

The Company has elected the following practical expedients and elected the following accounting policies related to this standard:

• carry forward of historical lease classification;

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• not to separate lease and non-lease components for office space and campus leases.

The Company accounts for its investments in less than majority owned companies in accordance with FASB ASC 323, Investments - Equity Method and Joint Ventures and FASB ASC 321, Investments - Equity Securities.

The Company applies ASC 323, Investments - Equity Method and Joint Ventures to investments w hen it has the ability to exercise significant influence but does not control the operating and financial policies of the company.

This is generally represented by equity ownership of at least 20 percent but not more than 50 percent.

Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted by the Company’s share of equity in income or losses after the date of acquisition.

The pro-rata share of the operating results of the investee is reported in the Consolidated Statements of Income as equity investment loss.

Investments that do not meet the equity method requirements are accounted for under ASC 321, Investments - Equity Securities, with changes in the fair value of the investment reported in the Consolidated Statements of Income as equity investment loss.

The Company periodically evaluates its equity method investment for indicators of other-than-temporary impairments.

Factors the Company considers when evaluating for other-than-temporary impairments include the duration and severity of the impairment, the reasons for the decline in value, including the impact of COVID-19, and the potential recovery period.

For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods.

If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment loss, and the equity investment balance is reduced to its fair value accordingly.

In each reporting period, the Company evaluates its cost method investments for observable prices changes.

Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria, including the impact of the COVID-19 pandemic.

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

The Company’s investments are presented on a one-line basis as “Investments” in the accompanying Consolidated Balance Sheets.

Additional information regarding the Company’s investments is located in “Note 6.

Investments” below, in these Consolidated Financial Statements.

Goodwill and indefinite-lived intangible assets.

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Simplifying the Test for Goodwill Impairment .

The Company annually assesses goodwill for impairment on October 31 st , or more frequently if events and circumstances indicate that goodwill might be impaired.

In connection with the Company’s November 1, 2013 acquisition of HCN, the Company recorded $ 38.6 million of goodwill, representing the excess of the purchase price over the amount assigned to the new assets acquired and the fair value assigned to identified intangible assets.

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired.

The Company’s goodwill and intangible assets are deductible for tax purposes.

In connection with the Company’s September 1, 2021 acquisition of RU, the Company recorded $ 217.2 million of goodwill, representing the excess of the purchase price over the amount assigned to the assets acquired, and the fair value assigned to intangible assets and liabilities assumed.

The Company also recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 51.0 million respectively, which includes trade name, accreditation, licensing and Title IV, and recorded $ 35.5 million respectively, of identified intangible assets with a definite useful life which includes student roster, curricula, and lead conversions.

The Company previously recorded goodwill in the amount of $ 38.6 million in connection with its acquisition of HCN, and later recorded charges reducing the carrying value of our goodwill to $ 26.6 million.

The Company also recorded $ 3.7 million of indefinite-lived intangible assets as part of the HCN acquisition.

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As a result, the Company recorded pretax, non-cash impairment charges of $ 7.3 million at HCN during the year ended December 31, 2019.

The Company evaluated events and circumstances related to the valuation of goodwill through the year ended December 31, 2020 and determined there were no indicators of impairment at HCN.

This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic.

The Company completed its annual assessment of goodwill as of October 31, 2021 and concluded that HCN’s fair value was more than the carrying value.

This annual assessment concluded that the fair value of HCN exceeded the carrying value by approximately $ 20.1 million, or 51.8 %.

The Company evaluated events and circumstances related to the valuation of goodwill through the year ended December 31, 2021 and determined there were no indicators of impairment.

This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic.

Indefinite-lived intangible assets are tested at least annually for impairment by comparing the fair value of the asset to the carrying value.

The 2019 and 2020 interim and annual testing concluded that the indefinite-lived assets were not impaired.

For additional details regarding goodwill and indefinite-lived intangible assets refer to “Note 7.

Interim and annual testing concluded that the indefinite-lived assets were not impaired.

For additional details regarding goodwill and indefinite-lived intangible assets, please refer to “Note 6.

Goodwill and Intangible Assets” below in these Consolidated Financial Statements.

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The Company accounts for the valuation of long-lived assets under FASB ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets.

ASC 360 requires that long-lived assets and certain identifiable definite-lived intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset.

ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

This is generally represented by equity ownership of at least 20 percent but not more than 50 percent.

Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted by the Company’s share of equity in income or losses after the date of acquisition.

The pro-rata share of the operating results of the investee is reported in the Consolidated Statements of Income as equity investment loss.

The Company periodically evaluates its equity method investment for indicators of other-than-temporary impairments.

For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods.

In each reporting period, the Company evaluates its cost method investments for observable prices changes.

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

The Company’s equity investments are included in other assets on the accompanying Consolidated Balance Sheets.

Derivatives and Hedging.

Derivative financial instruments are recorded on the Consolidated Balance Sheet as assets or liabilities and re-measured at fair value at each reporting date.

For derivatives designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings.

Self-Insured Liabilities.

RU has a partially self-insured health plan, or the Plan, for employee health benefits and records self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported.

The Plan carries insurance with a yearly loss limit per person of $ 225,000 and a maximum claims expense of 125 % of the average claim value.

Self-insurance liabilities for employee health benefits claims are recorded in the accrued compensation and benefits line item of the Consolidated Balance Sheet and are $ 1.0 million as of December 31, 2021.

Deferred revenue and student deposits.

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Revenue recognition.

The Company adopted FASB ASC 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018.

For periods prior to January 1, 2018, the Company recognized revenue in accordance with the previous accounting standard, ASC 605, Revenue Recognition .

The Company recognizes revenue in accordance with accounting standard, ASC 606, Revenue from Contracts with Customers .

Under ASC 606, revenue is recognized when evidence of a contract exists, delivery has occurred or as instructional services are delivered, the price is determinable, and collectability is reasonably assured.

Revenue from fees is recognized as information or services are delivered to students, assuming all other revenue recognition criteria are met.

For additional information regarding the Company’s adoption of ASC 606 and revenue recognition refer to “Note 4.

For additional information regarding revenue recognition, please refer to “Note 4.

Revenue” below in these Consolidated Financial Statements.

The Company provides scholarships and grants and technology fee grants to certain students to assist them financially and promote their registration.

The Company provides scholarships and grants and, in the case of APUS, technology fee grants to certain students to assist them financially and promote their enrollment.

Scholarship assistance and technology fee grants of $ 26.1 million, $ 45.6 million, and $ 54.6 million were provided for the years ended December 31, 2019, 2020 and 2021, respectively, and are included as a reduction to revenue in the accompanying Consolidated Statements of Income.

Advertising costs.

Advertising costs are expensed as incurred during the year pursuant to FASB ASC 720-35.

Advertising costs are expensed as incurred during the year.

Advertising expenses for the years ended December 31, 2019, 2020 and 2021 were $ 40.9 million, $ 51.3 million, and $ 60.3 million, respectively, and are included in selling and promotional expenses in the accompanying Consolidated Statements of Income.

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The Company accounts for stock-based compensation in accordance with FASB ASC 718, Stock Compensation , which requires companies to expense share-based compensation based on fair value, and adopted ASU 2016-09, Compensation-Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting in

January 2017.

Improvements to Employee Share-Based Payment Accounting in January 2017.

Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing.

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The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model that uses certain assumptions.

The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of APEI’s common stock.

The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of the Company’s common stock.

In addition, the Company determines the risk-free interest rate by selecting the U.S.

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Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under ASC 718 .

For additional information regarding stock-based compensation, refer to “Note 11.

For additional information regarding stock-based compensation, please refer to “Note 11.

Stockholders’ Equity” in these Consolidated Financial Statements.

Common Stock:

On March 1, 2021, the Company completed an underwritten public offering of 3,680,000 shares of its common stock at a price to the public of $ 25.00 per share for net proceeds of approximately $ 86.2 million, after deducting underwriting discounts and commissions and other offering expenses.

Income per common share.

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Fair value of financial instruments.

Cash equivalents are measured and recorded at fair value.

The Company also measures certain financial assets at fair value for disclosure purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporary impairments.

The Company measures certain financial assets at fair value for disclosure purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporary impairments.

Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset.

Assets recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities;

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As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy.

The valuation of the interest rate cap is measured as the present value of all expected future cash flows based on the LIBOR-based yield curves.

The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty.

As such, the Company’s interest rate cap falls within Level 2 of the fair value hierarchy.

The carrying value of long-term debt approximates fair value as it is based on a variable rate index.

Concentration of credit risk.

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The Company considers the applicability and impact of all ASUs.

ASUs issued but not listed below were assessed and determined to be either not applicable or expected to have minimal impact on its consolidated financial position and/or results of operations.

In June 2016, FASB, issued ASU No.

2016-13, Financial Instruments - Credit Losses, which is included in ASC Topic 326, Measurement of Credit Losses on Financial Instruments with certain amendments made to the standard in November 2018

through ASU No.

2018-9, Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

The new guidance revises the accounting requirements related to the measurement of credit losses and requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability.

Assets must be presented in the financial statements at the net amount expected to be collected.

The guidance is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption was permitted.

The Company adopted this standard effective January 1, 2020 using the modified retrospective approach.

The adoption of this standard did not have a material impact on its Consolidated Financial Statements.

In August 2018, FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.

This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or software licenses.

The accounting for the service element of a hosting arrangement that is a service contract is not affected by this amendment.

The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption was permitted.

The Company adopted this standard effective January 1, 2020 using the prospective approach.

The adoption of this standard did not have a material impact on its Consolidated Financial Statements.

ASUs issued but not listed were assessed and determined to be either not applicable or expected to have minimal impact on its consolidated financial position and/or results of operations.

Acquisition Activity

On October 28, 2020, the Company entered into a definitive agreement to acquire Rasmussen University, a nursing- and health sciences-focused institution serving over 18,000 students at its 24 campuses across six states and online, which the Company refers to as the Rasmussen Acquisition.

Pursuant to the terms of a Membership Purchase Agreement, or the Rasmussen Agreement, the Company agreed to purchase from FAH Education, LLC, all of the units of membership interests in Rasmussen LLC, Rasmussen University’s parent company, for $ 300 million in cash and $ 29 million in shares of a new series of non-voting preferred stock of the Company to be issued at the closing of the Rasmussen Acquisition (or, at the Company’s election, up to an additional $ 29 million in cash in lieu thereof), subject to customary adjustments, including for net working capital, cash and debt of the acquired companies.

The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions that include, among others, regulatory review by ED, approval by the Higher Learning Commission, and approval by or notices to other regulatory and accrediting bodies.

In connection with entering into the Rasmussen Agreement, on October 28, 2020, the Company entered into a senior secured credit facilities commitment letter or the Commitment Letter with Macquarie Capital (USA) Inc., or Macquarie Capital, and Macquarie Capital Funding LLC, or Macquarie Lender, pursuant to which Macquarie Lender committed to provide (i) a senior secured term loan facility in the aggregate principal amount of $ 175 million, or the Term Facility and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20 million (together with the Term Facility, the Facilities).

Macquarie Capital will act as lead arranger and bookrunner with respect to the Facilities.

The Company currently expects to pay up to $ 175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities.

On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with previous accounting under ASC 605, Revenue Recognition .

On September 1, 2021, the Company completed the Rasmussen Acquisition.

The Rasmussen Acquisition was completed pursuant to a Membership Interest Purchase Agreement, or the Purchase Agreement, dated October 28, 2020, by and among the Company, FAH Education, LLC, or Seller, Rasmussen, LLC, or Rasmussen, and Rasmussen College, LLC, or Rasmussen College, a wholly owned subsidiary of Rasmussen.

Pursuant to the Purchase Agreement, on the Closing Date, the Company purchased from Seller all membership interests in RU for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $ 325.5 million in cash.

Upon completion of the Rasmussen Acquisition, Rasmussen merged into Rasmussen College and Rasmussen College became a wholly owned subsidiary of the Company.

The Company applied the acquisition method of accounting to the Rasmussen Acquisition, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable assets and liabilities assumed was allocated to goodwill.

Goodwill reflects the fair value associated with the RU workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition.

The goodwill recorded as part of the acquisition was allocated to the RU reportable segment in the amount of $ 216.9 million and is deductible for tax purposes.

For the year ended December 31, 2021, the Company incurred approximately $ 6.3 million of acquisition-related expenses, respectively, which are included in general and administrative on the Consolidated Statements of Income.

The preliminary opening balance sheet is subject to adjustment based on a final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and goodwill.

The Company has up to one year from the Closing Date, or the measurement period, to complete the allocation of the purchase price.

As the Company finalizes its assessment of the fair values of certain acquired assets and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period.

The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur.

During the fourth quarter of 2021, the Company recorded a $ 0.3 million reduction in goodwill recorded in connection with the RU Acquisition.

The following table summarizes the components of the estimated consideration along with the purchase price allocation (in thousands):

Purchase Price Allocation Amount

Cash and cash equivalents $ 329,000

Working capital adjustment and additional cash contributions 1,826

Total consideration 330,826

Assets acquired:

Cash and cash equivalents 5,200

Accounts receivable 10,700

Prepaid expenses 4,600

Property and equipment, net 36,996

Operating lease assets 75,800

Deferred tax asset 3,049

Intangible assets 86,500

Other assets 600

Total assets acquired 223,445

Liabilities assumed:

Accounts payable 1,200

Accrued expenses 6,142

Deferred revenue 22,700

Operating lease liabilities, current 11,200

Operating lease liabilities, long-term 67,000

Other liabilities 1,300

Total liabilities assumed 109,542

Net assets acquired 113,903

Goodwill $ 216,923

The fair value of the identified intangible assets, including the trade name, student roster, and lead conversions were determined using the income-based approach.

The fair value of curricula and accreditation, licensing, and Title IV identified intangible assets were determined using the cost approach.

The table below presents a summary of intangible assets acquired and the useful lives of these assets (in thousands):

Intangible Assets Useful life Amount

Trade name Indefinite 26,500

Accreditation, licensing and Title IV Indefinite 24,500

Student roster 2 years 20,000

Curricula 3 years 14,000

Lead conversions 2 years 1,500

Pro Forma Financial Information

The following unaudited pro forma information is presented as if the Rasmussen Acquisition occurred on January 1, 2020.

In preparing the pro forma results, the Company is required to make estimates and assumption including with respect to underlying financial performance, purchase accounting, appropriate depreciation and amortization methods, effective tax rate, and future interest rates, among other estimates and assumptions.

The Company believes that these estimates and assumptions are reasonable under the circumstances.

The pro forma results do not represent what may occur in the future as actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements.

The table below presents the Company’s pro forma combined revenue and net income (in thousands):

Year Ended December 31,

Revenue $ 583,330 $ 600,984

Net Income 25,876 21,933

Graduate School USA

On August 11, 2021, the Company announced that it had entered into an agreement to acquire substantially all of the assets of Graduate School USA, or GSUSA, one of the largest providers of training to the federal government workforce, for approximately $ 1.0 million.

On January 1, 2022, the Company completed its acquisition of GSUSA.

The following is a description of principal activities from which the Company generates its revenue.

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Instructional services revenue includes tuition, technology, and laboratory fees.

The Company generally recognizes revenue ratably as instructional services are provided over the period or term, which is, for APUS, either an eight- or sixteen-week period, and for HCN, a quarterly term.

Tuition is charged by course or term, technology fees are charged to APUS students on a per course basis, and technology and laboratory fees are charged to HCN students on a per term basis, when applicable.

Tuition is charged by course or term, technology fees are charged to APUS students on a per course basis, and technology and laboratory fees are charged to RU and HCN students on a per term basis, when applicable.

Generally, instructional services are billed when a course or term begins and paid within thirty days of the bill date.

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APUS graduation fee revenue represents a one-time, non-refundable $ 100 fee per degree, charged to students upon submission of a program graduation application.

The fee covers administrative costs associated with completing

a review of the student’s academic and financial standing prior to graduation.

The fee covers administrative costs associated with completing a review of the student’s academic and financial standing prior to graduation.

The Company recognizes revenue once graduation review services are completed.

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Textbook and other course material fees .

Textbook and other course materials revenue represent fees related to the sale of textbooks and other course materials to HCN students.

Textbook and other course materials revenue represent fees related to the sale of textbooks and other course materials to RU and HCN students.

Revenue is recognized at the beginning of the term when the textbooks and other course materials fees are billed.

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Military active-duty service members, National Guard members, reservists, military spouses and dependents, and, until January 2020, veterans, as well as a grant to cover the technology fee for students using TA.

APUS and HCN also provide grants and scholarships to certain students to assist them financially with their educational goals.

The statement of retained earnings at January 1, 2018 was adjusted by $ 278,000 to reflect the after tax impact of the adoption of ASC 606, related to the recognition of graduation fee revenue at APUS.

There were no adjustments to any other revenue type as a result of the adoption of ASC 606.

For the year ended December 31, 2020, there were no material adverse impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

RU provides a RU-funded military grant pursuant to which active duty servicemembers receive reduced tuition of $ 167 per credit hour.

In addition, National Guard, Reserve, retired military and veterans enrolling in a degree, Diploma or Certificate program are eligible for a 10% tuition grant through RU.

RU also extends the grant to eligible spouses and dependents of active duty military, retired military and veterans.

APUS, RU, and HCN also provide grants and scholarships to certain students to assist them financially with their educational goals.

For the years ended December 31, 2020 and 2021, there were no material adverse impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

Disaggregation of Revenue

In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided.

The table also includes a reconciliation of the disaggregated revenue with the reportable segments:

The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):

Year Ended December 31, 2019

(In thousands)

APEI HCN Intersegment Consolidated

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 255,130 $ — $ 25,369 $ ( 259 ) $ 280,240

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Year Ended December 31, 2020

(In thousands)

APEI HCN Intersegment Consolidated

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 283,827 $ — $ 30,346 $ ( 243 ) $ 313,930

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Year Ended December 31, 2021

(In thousands)

APEI HCN Intersegment Consolidated

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 281,689 $ 74,515 $ 38,569 $ ( 183 ) $ 394,590

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Total Revenue $ 283,700 $ 89,483 $ 45,803 $ ( 183 ) $ 418,803

Effective January 1, 2019, the APEI Segment began charging the HCN Segment for the value of courses taken by HCN Segment employees at APUS.

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through December 31, 2021.

The Company did not consolidate the financial results of the RU Segment prior to the Closing Date.

The APUS Segment charges the HCN Segment and corporate employees for the value of courses taken at APUS.

The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

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The Company has no contract assets or deferred contract costs as of December 31, 2021.

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course, in the case of APUS, or starts a term, in the case of HCN, and revenue is recognized as described earlier in this footnote.

Deferred revenue at December 31, 2019 was $ 17.4 million and includes $ 9.6 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 7.8 million in consideration received in advance for future courses or terms, or student deposits, and represents the Company’s performance obligation to transfer future instructional services to students.

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course, in the case of APUS, or starts a term, in the case of RU and HCN, and revenue is recognized as described earlier in this footnote.

Deferred revenue at December 31, 2020 was $ 22.1 million and includes $ 13.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.4 million in consideration received in advance for future courses or terms,

or student deposits, and represents the Company’s performance obligation to transfer future instructional services to students.

Deferred revenue at December 31, 2021 was $ 21.8 million and includes $ 12.9 million in future revenue that has not yet been earned for courses and terms that are in progress as well as $ 8.9 million in student deposits.

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Recoveries of receivables previously written off are recorded when received.

APUS does not charge interest on past due accounts receivable.

APUS and RU do not charge interest on past due accounts receivable.

HCN charges interest on payment plans when a student leaves the payment plan program upon graduation or exit of the program.

Interest earned for the years ended December 31, 2019, and 2020, was approximately $ 15,000 and $ 17,000 , respectively.

There was no interest earned for the year ended December 31, 2018.

Interest charged by HCN on payment plans was not material for the periods presented.

Refund Policies

The Company provides a stated period of time during which students may withdraw from a course for APUS, or a term for HCN, without further financial obligation resulting in a refund liability.

The Company provides a stated period of time during which students may withdraw from a course for APUS, or a term for RU and HCN, without further financial obligation resulting in a refund liability.

The refund policy for each subsidiary is as follows:

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APUS’s tuition revenue varies from period to period based on the number of students enrolled, the number of net course registrations, the volume of undergraduate versus graduate registrations, and student payor source.

Students may remit tuition payments through the online registration process at any time or they may elect various payment options, including payments by sponsors, alternative loans, financial aid, or TA, which remits payments directly to APUS.

Students may remit tuition payments through the online registration process upon enrollment or they may elect various payment options, including payments by sponsors, alternative loans, financial aid, or TA, which remits payments directly to APUS.

If one of the various other payment options is confirmed as secured, the student is allowed to start the course.

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Tuition revenue that has not yet been earned by APUS is presented as deferred revenue in the accompanying Consolidated Balance Sheets.

APUS refunds 100 % of tuition for courses that are dropped before the conclusion of the first seven days of a course.

The Company does not recognize revenue for dropped courses.

After a course begins, APUS uses the following refund policy:

8-Week Course- Tuition Refund Schedule

Withdrawal Date Tuition Refund Percentage

Before or During Week 1 100 %

During Week 2 75 %

During Weeks 3 through 4 50 %

During Weeks 5 through 8 No Refund

16-Week Course- Tuition Refund Schedule

Withdrawal Date Tuition Refund Percentage

Before or During Week 1 100 %

During Week 2 100 %

During Weeks 3 through 4 75 %

During Weeks 5 through 8 50 %

During Weeks 9 through 16 No Refund

APUS refunds 100 % of tuition for courses that are dropped before the conclusion of the week of a course, 75 % for courses dropped during week two, and a 50 % refund for courses dropped during weeks three and four.

No refund is given for courses dropped during weeks five through eight.

For sixteen-week courses, APUS refunds 100 % of tuition for courses that are dropped before the conclusion of the first two weeks of a course, 75 % for courses dropped during weeks three and four, and 50 % for courses dropped during weeks five through eight.

No refund is given for courses dropped during weeks nine through sixteen.

Students affiliated with certain organizations may have an alternate refund policy.

The Company does not recognize revenue for dropped courses.

If a student withdraws during the academic term, APUS calculates the portion of instructional services and technology fees that are non-refundable based on the tuition refund policy and recognizes it as revenue in the period the withdrawal occurs.

Rasmussen University

RU’s tuition revenue varies from period to period based on the number of students enrolled and the program type in which they are enrolled.

Students may remit tuition payments upon enrollment, or they may elect various payment options that can delay receipt of payment up until the term starts or longer.

These other payment options include payments by sponsors, financial aid, and alternative loans.

Generally, financial aid is awarded prior to the start of the term and requests for authorization of disbursement begin in the second week of the term.

Tuition revenue that has not yet been earned by RU is presented as deferred revenue in the accompanying Consolidated Balance Sheet.

RU allows students to withdraw from a term with no financial obligation through the end of the first week of the term.

Any student withdrawals during the second week of the term through the 60 % point of the term result in a prorated tuition refund.

There are no refunds after the 60 % of the term.

If a student withdraws during the term, RU calculates the portion of tuition that is non-refundable based on the tuition refund policy and the applicable state laws.

RU recognizes the non-refundable tuition as revenue in the period the withdrawal occurs.

Hondros College of Nursing

HCN’s tuition revenue varies from period to period based on the number of students enrolled and the programs in which they are enrolled.

Students may remit tuition payments at any time, or they may elect various payment options that can delay receipt of payment up until the term starts or longer.

HCN’s tuition revenue varies from period to period based on the number of students enrolled and the program type in which they are enrolled.

Students may remit tuition payments upon enrollment, or they may elect various payment options that can delay receipt of payment up until the term starts or longer.

These other payment options include payments by sponsors, financial aid, and alternative loans.

Beginning July 1, 2018, HCN began offering its students an extended payment plan option designed to assist students with educational costs consisting of tuition, textbooks, and fees.

HCN offers its students an extended payment plan option designed to assist students with educational costs consisting of tuition, textbooks, and fees.

The extended payment plan option is only available after all other student financial assistance has been applied to those costs.

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The grant is designed to limit a student’s monthly payment to $ 200 through an award of up to $ 200 per month or $ 600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources.

HCN awarded approximately $ 0.2 million of institutional grants during the year ended December 31, 2020.

HCN awarded approximately $ 0.2 million and $ 0.6 million of institutional grants during the years ended December 31, 2020 and 2021, respectively.

Generally, financial aid is awarded prior to the start of the term and requests for authorization of disbursement begin in the second week of the term.

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For an online course, the date of withdrawal is determined by a student’s last submitted assignment in the course.

HCN uses the following refund policies:

HCN’s refund policy for students at its Ohio campuses is as follows:

Quarterly Term

Withdrawal Date Tuition Refund Percentage

Before first full calendar week of the quarter 100 %

During first full calendar week of the quarter 75 %

During second full calendar week of the quarter 50 %

During third full calendar week of the quarter 25 %

During fourth full week of the quarter No Refund

HCN’s refund policy for students at its Indianapolis campus is as follows:

Withdrawal Date Tuition Refund Percentage

Before first calendar week of quarter 100 %

During first full calendar week of the quarter 90 %

During third full calendar week of the quarter 75 %

During sixth full calendar week of the quarter 50 %

During ninth full calendar week of the quarter 25 %

After the ninth week of the quarter No Refund

HCN refunds 100 % of tuition for courses that are dropped before the first full calendar week of the quarter, 75 % for courses dropped during the first full calendar week of the quarter, 50 % refund for courses dropped during the second full week of the quarter and a 25 % refund for courses dropped during the third full calendar week of the quarter.

No refund is given for all withdrawals after the third full calendar week of the quarter.

HCN’s refund policy for the Indiana campus complies with the rules of the Indiana Board of Proprietary Education and is determined based upon percentage of completion of the assignments.

If a student withdrawals within six days of signing the contract, a full refund of any money paid will be issued and there will be no further obligation owed from the student.

Once the student completes 75 % of the assignments, the student is responsible for the full amount of tuition.

A portion of the tuition will be refunded if a student withdraws after six days of signing the contract and prior to completing 75 % of the assignments.

If a student withdraws during the term, HCN calculates the portion of tuition that is non-refundable based on the tuition refund policy and recognizes it as revenue in the period the withdrawal occurs.

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The Company includes this estimate in the transaction price.

At December 31, 2019 and 2020, there was approximately $ 9,000 and $ 28,800 , respectively, of refund liabilities for APUS included in deferred revenue.

The refund liabilities for APUS, included in deferred revenue, are not material for all periods presented.

APUS updates the measurement of the refund liability at the end of each reporting period for changes in expectations, and if the reversal becomes significant, recognizes corresponding adjustments to revenue.

Because each HCN term coincides with the Company’s fiscal quarter period, there is no refund liability as of December 31, 2019 and December 31, 2020.

Because RU and HCN’s terms coincide with the Company’s fiscal quarter period, there are no refund liabilities as of December 31, 2020 and 2021 for RU or HCN.

Property and Equipment

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The losses on long-lived assets are included as loss on disposals of long-lived assets in these Consolidated Financial Statements.

For the year ended December 31, 2020, the Company’s APEI Segment sold certain excess real property located in Charles Town, West Virginia, for a net sales price of $ 0.8 million, resulting in a loss on disposals of long-lived assets of $ 0.4 million.

For the years ended December 31, 2020 and 2021, the Company’s APUS Segment sold certain excess real property located in Charles Town, West Virginia, for a net sales price of $ 0.8 million and $ 0.7 million, respectively, resulting in a loss on disposals of long-lived assets of $ 0.4 million and $ 0.5 million, respectively.

The loss was included in loss on disposals of long-lived assets in these Consolidated Financial Statements.

During the years ended December 31, 2019, 2020, and 2021, the Company recorded depreciation expense of $ 15.3 million, $ 13.0 million and $ 12.7 million, respectively.

In addition, the Company recorded amortization expense related to other assets of $ 0.6 million and $ 0.3 million, during the years ended December 31, 2018 and 2019, respectively.

There was no amortization expense during the year ended December 31, 2020 due to assets being fully amortized.

On September 30, 2012, the Company made a $ 6.8 million investment in preferred stock, treated as in-substance common stock, of NWHW Holdings, Inc., or NWHW Holdings, a holding company that operates an information technology training company, New Horizons Worldwide, Inc., or New Horizons, representing approximately 20 % of the fully diluted equity of NWHW Holdings.

The Company initially accounted for its investment in New Horizons under ASC 323, Investments - Equity Method and Joint Ventures .

Therefore, the Company recorded the investment at cost and recognized its share of earnings or losses in the investee in the periods for which they were reported with a corresponding adjustment in the carrying amount of the investment.

During the first quarter of 2019, the Company determined that it no longer qualified to account for its investment in NWHW Holdings under ASC 323 because the Company is unable to exercise significant influence over operating and financial policies of NWHW Holdings;

therefore, the Company elected to account for the investment under ASC 321, Equity Investments .

Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

Earnings or losses that were previously recorded remain as part of the carrying amount of the investment.

The carrying value of the investment was approximately $ 5.2 million, as of December 31, 2019 and 2020, respectively.

On February 20, 2013, the Company made a $ 4.0 million investment in preferred stock of Fidelis Education, Inc., or Fidelis Education, representing approximately 22 % of its fully diluted equity.

On February 1, 2016, the Company made an additional $ 950,000 investment in preferred stock increasing its investment in Fidelis Education to approximately 23 % of its fully diluted equity.

Fidelis Education offers a learning relationship management platform that improves education advising and

career mentoring services offered to students as they pursue college degrees.

In connection with the investment, the Company is entitled to certain rights, including the right to representation on the Board of Directors of Fidelis Education.

The Company accounts for its investment in Fidelis Education under ASC 323, Investments - Equity Method and Joint Ventures .

Therefore, the Company recorded the investment at cost and recognizes its share of earnings or losses in the investee in the periods for which they are reported with a corresponding adjustment in the carrying amount of the investment.

Under ASC 323, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

Earnings or losses that were previously recorded remain as part of the carrying amount of the investment.

The carrying value of the investment is approximately $ 1.1 million, as of December 31, 2019 and 2020.

On April 2, 2014, the Company made a $ 1.5 million investment in preferred stock of Second Avenue Software, Inc., or Second Avenue Software, representing approximately 26 % of its fully diluted equity.

Second Avenue Software is a game-based education software company that develops software on a proprietary and “work-for-hire” basis.

The Company initially accounted for its investment in Second Avenue Software under ASC 323, Investments - Equity Method and Joint Ventures .

During the first quarter of 2019, the Company determined that it no longer qualified to account for its investment in Second Avenue Software under ASC 323 because the Company is no longer able to exercise significant influence over operating and financial policies of Second Avenue Software;

therefore, the Company has elected to account for the investment under ASC 321, Equity Investments .

Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

The carrying value of the investment is approximately $ 0.8 million as of December 31, 2019 and 2020.

On December 21, 2015, the Company made a $ 3.5 million investment in preferred stock of RallyPoint, an online social network for members of the military, representing approximately 14 % of its fully diluted equity.

The Company accounts for its investment in RallyPoint using ASC 321, Investments - Equity Securities .

On October 24, 2017, the Company made an additional $ 0.3 million investment in preferred stock of Rally Point.

Subsequent to the additional investment, the Company’s fully diluted ownership was unchanged.

Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

The carrying value of the investment was approximately $ 3.3 million as of December 31, 2019 and 2020.

The Company evaluated its equity method investment for impairment as of December 31, 2019 and 2020, including a review of any impacts related to the COVID-19 pandemic, and determined the investment was no t impaired.

During the year ended December 31, 2018, the Company recorded an impairment charge of approximately $ 0.1 million on its equity method investment.

The Company evaluated its cost method investments for impairment as of December 31, 2019 and 2020, including a review of any impacts related to the COVID-19 pandemic, and determined no ne of the investments were impaired.

During the year ended December 31, 2018, the Company recorded impairment charges of approximately $ 0.5 million on its cost method investments.

The aggregate carrying amount of the Company’s investments accounted for under ASC 321, Investments - Equity Securities , presented on its Consolidated Balance Sheets on a one-line basis as “Investments”, was approximately $ 9.4 million as of December 31, 2019 and 2020.

Goodwill and Intangible Assets

In connection with its November 1, 2013 acquisition of HCN, the Company applied ASC 805, Business Combinations, using the acquisition method of accounting.

The Company recorded $ 38.6 million of goodwill, representing the excess of the purchase price over the amount assigned to the net assets acquired and the fair value assigned to identified intangible assets, and recorded $ 8.1 million of identified intangible assets.

In connection with the Rasmussen Acquisition, the Company applied FASB ASC 805, Business Combinations , using the acquisition method of accounting, and recorded $ 217.2 million of goodwill, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets.

The Company previously recorded goodwill in the amount of $ 38.6 million in connection with its acquisition of HCN, and later recorded impairment charges reducing the carrying value of our goodwill to $ 26.6 million.

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and in 2018 adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

The Company annually assesses goodwill for impairment on October 31 st , or more frequently if events and circumstances, including a review of any impacts related to the COVID-19 pandemic, indicate that goodwill might be impaired.

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances, including a review of any impacts related to the COVID-19 pandemic, indicate that goodwill might be impaired.

Goodwill impairment testing consists of an optional qualitative assessment as well as a quantitative test.

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If the carrying value is greater than the fair value, the difference between the two values is recorded as an impairment.

In addition to goodwill, HCN recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 3.7 million, which includes trade names, accreditation, licensing and Title IV, and affiliate agreements, and recorded $ 4.4 million of identified intangible assets with a definite useful life.

At the acquisition date, the useful life assigned to each type of intangible asset with a definite useful life was as follows:

Student contracts and relationships 6 years

Curricula 3 years

Non-compete agreements 5 years

As of December 31, 2019 and 2020, all identified intangible assets with a useful life were fully amortized.

During the year ended December 31, 2019, as a result of circumstances that included HCN’s continued underperformance against revised 2019 internal targets and overall 2019 financial performance, the Company completed interim goodwill impairment tests during the first and third quarters.

The implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 26.6 million, or $ 7.3 million less than its carrying value.

The implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 26.6 million, or $ 7.3 million

less than its carrying value.

There was no impairment of the intangible assets.

As a result, the Company recorded a pretax, non-cash charges of $ 7.3 million to reduce the carrying value of its goodwill in the HCN Segment during 2019.

There was no impairment of goodwill or the intangible assets during the year ended December 31, 2020.

As a result, the Company recorded a pretax, non-cash charge of $ 7.3 million to reduce the carrying value of its goodwill in the HCN Segment during 2019.

There was no impairment of goodwill or the intangible assets during the years ended December 31, 2020 and 2021.

The Company engaged an independent valuation firm to assist with the valuation and determination of the fair value of HCN for both assessments.

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The goodwill impairment charges recorded in 2019 eliminated the difference between the fair value of goodwill and the carrying value of goodwill.

As of October 31, 2019 and 2020, the Company completed its annual assessment of goodwill and concluded that HCN’s fair value was more than the carrying value;

For the year ended December 31, 2020, the Company completed its annual assessment of goodwill and concluded that HCN’s fair value was more than the carrying value;

consequently, there was no impairment.

The Company’s October 31, 2020 annual assessment concluded that the fair value of HCN exceeded the carrying value by approximately $ 13.7 million, or 37.1 %.

For the year ended December 31, 2021, the Company completed its annual assessment of goodwill and concluded that the fair value of HCN exceeded the carrying value by approximately $ 20.1 million, or 51.8 %.

Changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2020 and 2021 are as follows (in thousands):

APEI Segment HCN Segment Total Goodwill

APUS Segment RU Segment HCN Segment Total Goodwill

Goodwill as of December 31, 2019

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$ — $ — $ 26,563 $ 26,563

Goodwill acquired — 217,203 — 217,203

Impairment — — — —

Adjustments — ( 280 ) — ( 280 )

Goodwill as of December 31, 2021

$ — $ 216,923 $ 26,563 $ 243,486

Intangible assets, included in Other Assets on the Consolidated Balance Sheets in these Consolidated Financial Statements, consist of the following as of December 31, 2019 and 2020 (in thousands):

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 51.0 million and $ 3.7 million, respectively, which includes trade name, accreditation, licensing and Title IV, and affiliate agreements, and recorded $ 35.5 million and $ 4.4 million, respectively, of identified intangible assets with a definite useful life.

At the acquisition dates, the useful life assigned to each type of intangible asset with a definite useful life was as follows:

Student contracts and relationships 6 years

Non-compete agreements 5 years

Curricula 3 years

Lead conversions 2 years

Student Roster 2 years

The future amortization of finite-lived intangible assets is as follows (in thousands):

Future Amortization of Intangibles Amortization

2022 $ 15,417

Total $ 30,361

As of December 31, 2020 and 2021, all HCN Segment recorded identified intangible assets with a definite useful life were fully amortized.

RU Segment Intangible assets consist of the following as of December 31, 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-lived intangible assets

Student roster $ 20,000 $ 3,333 $ 16,667

Curricula 14,000 1,556 12,444

Lead Conversions 1,500 250 1,250

Total finite-lived intangible assets 35,500 5,139 30,361

Indefinite-lived intangible assets

26,500 — 26,500

Non-compete agreements

Accreditation, licensing and Title IV

24,500 — 24,500

Total indefinite-lived intangible assets

51,000 — 51,000

Total intangible assets

$ 86,500 $ 5,139 $ 81,361

HCN Segment intangible assets consist of the following as of December 31, 2020 and 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-lived intangible assets

Student contracts and relationships

$ 3,870 $ 3,870 $ —

Curricula 405 405 —

Non-compete agreements

Total finite-lived intangible assets

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$ 8,082 $ 4,361 $ 3,721

Finite-lived intangible assets were amortized in a manner that reflects the estimated economic benefit of the intangible assets.

Curricula and non-compete agreements were amortized on a straight-line basis.

Finite-lived intangible assets are amortized in a manner that reflects the estimated economic benefit of the intangible assets.

Student roster, curricula, lead conversions and non-compete agreements are amortized on a straight-line basis.

Student contracts and relationships were amortized using an accelerated method.

Determining the fair value of HCN requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, EBITDA margins, discount rates, and future market conditions, among others.

Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on HCN’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future.

Determining fair value requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, EBITDA margins, discount rates, and future market conditions, among others.

Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future.

If the Company’s assumptions are not realized, the Company may record additional goodwill impairment charges in future periods.

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These options are included in the lease term when it is reasonably certain that the option will be exercised.

In February 2016, FASB issued ASU No.

2016-02, Leases (Topic 842) .

The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.

This standard requires entities to recognize most operating leases on their balance sheets as right-of-use assets, or ROU assets, with a corresponding lease liability, in addition to disclosing certain key information about leasing arrangements.

The adoption of this standard resulted in the recognition of operating lease ROU assets and corresponding lease liabilities of approximately $ 12.1 million on the Consolidated Balance Sheet as of January 1, 2019.

There was no impact to the Company’s net income or liquidity as a result of the adoption of this ASU.

Operating lease assets are ROU assets, which represent the right to use an underlying asset for the lease term.

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There are no variable lease payments.

Lease expense for the years ended December 31, 2019 and 2020 was approximately $ 2.6 million and $ 2.9 million, respectively.

Lease expense for the years ended December 31, 2019, 2020, and 2021 was approximately $ 2.6 million, $ 2.9 million, and $ 7.5 million, respectively.

These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.

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Maturity of Lease Liabilities Lease Payments

2022 $ 16,036

2027 and beyond 33,156

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Weighted average discount rate 3.1 %

The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through May 2022.

Lease expense related to the APEI Segment’s operating leases was $ 0.5 million in each of the years ended December 31, 2019 and 2020, respectively.

HCN leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo, Ohio, and a campus in Indianapolis, Indiana, under operating leases that expire through June 2029.

Lease expenses related to the HCN Segment’s operating leases were $ 2.1 million, and $ 2.4 million for the years ended December 31, 2019 and 2020, respectively.

A majority of the leases require the payment of taxes, maintenance, insurance and certain other operating expenses applicable to the leased premises.

In December 2020 HCN entered into a lease agreement for a new campus location in Akron, Ohio.

The lease term begins in April 2021 for an 87 month period expiring in June 2028, with four additional optional five year renewal terms.

The total value of the minimum rental payments for the initial term of the lease is approximately $ 2.5 million.

The Company leases corporate office space in Maryland under an operating lease that expires in May 2022, and until May 2021, the APUS Segment leased administrative office space in Virginia.

The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating

leases that expire through October 2033.

The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, under operating leases that expire through June 2029.

Long-Term Debt

On the Closing Date, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, or the Agent, Macquarie Capital USA Inc.

and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto, or the Lenders.

The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $ 175.0 million, or the Term Loan, with a scheduled maturity date of September 1, 2027 and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20.0 million, or the Revolving Credit Facility, and, together with the Term Loan, is referred to as the Facilities, with a scheduled maturity date of September 1, 2026, the full capacity of which may be utilized for the issuance of letters of credit.

The Revolving Credit Facility also includes a $ 5.0 million sub-facility for swing line loans.

The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the Closing Date and is presented net of the debt issuance costs of $ 13.1 million in the Consolidated Balance Sheet.

The debt issuance costs are being amortized using the effective interest method over the term of the Term Loan.

Debt issuance costs of $ 0.5 million related to the Revolving Credit Facility were recorded as an asset and are being amortized to interest expense over the term of the Revolving Credit Facility.

There were no borrowings outstanding on the Revolving Credit Facility at December 31, 2021.

The Credit Agreement provides APEI with the option, subject to certain conditions, including obtaining commitments from one or more lenders, to increase the total commitments under the Revolving Credit Facility, increase the amount of the Term Loan and/or incur incremental term loan facilities in an aggregate amount not to exceed the sum of (A) the greater of (1) $ 91.0 million and (2) an amount equal to consolidated EBITDA on a pro forma basis for the most recently ended four-quarter period (less the aggregate amount of certain other incremental indebtedness permitted to be incurred by APEI, and plus the aggregate amount of voluntary prepayments of certain other incremental indebtedness permitted to be incurred by APEI) and (B) an amount (1) in the case of secured incremental facilities that rank pari passu with the Facilities, such that the First Lien Net Leverage Ratio would not be greater than 1.50 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, (2) in the case of secured incremental facilities that rank junior to the Facilities, such that the Secured Net Leverage Ratio would not be greater than 1.75 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, and (3) in the case of unsecured incremental facilities, such that the Total Net Leverage Ratio would not be greater than 2.00 to 1.00 or the Interest Coverage Ratio would not be less than 2.00 to 1.00.

The First Lien Net Leverage Ratio, the Secured Net Leverage Ratio and the Total Net Leverage Ratio are each defined in the Credit Agreement and reflect a ratio of (x) in the case of the First Lien Net Leverage Ratio, consolidated first lien indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, (y) in the case of the Secured Net Leverage Ratio, consolidated secured indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, and (z) in the case of the Total Net Leverage Ratio, consolidated total indebtedness to consolidated EBITDA.

The Interest Coverage Ratio is also defined in the Credit Agreement and reflects a ratio of consolidated EBITDA to consolidated interest expense.

Outstanding borrowings under the Facilities bear interest at a per annum rate equal to LIBOR (subject to a 0.75 % floor) plus 5.50 %, which shall increase by an additional 2.00 % on all past due obligations if APEI fails to pay any amount when due.

An unused commitment fee in the amount of 0.50 % is payable quarterly in arrears based on the average daily unused amount of the commitments under the Revolving Credit Facility.

APEI is also required to make principal payments of the Term Loan on the last day of each quarter, commencing with the quarter ended December 31, 2021, in an amount equal to $ 2.2 million per quarter.

Subject to certain exceptions, APEI is required to make mandatory prepayments of the Term Loan, with the proceeds of asset sales, casualty and condemnation events, and unpermitted debt issuances.

The Facilities are and will be guaranteed by APEI’s subsidiaries and certain of APEI’s future subsidiaries that are required to become a party thereto as guarantors (collectively, the “Guarantors”).

The obligations of APEI and the Guarantors are secured by a pledge of substantially all of their respective assets pursuant to the terms of the Collateral Agreement dated as of the Closing Date by and among APEI, the Agent and the Guarantors from time to time party thereto (the “Collateral Agreement”).

The Credit Agreement contains customary affirmative and negative covenants, including limitations on APEI’s and its subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate

transactions, in each case, subject to certain exceptions, as well as customary representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Facilities.

In addition, the Credit Agreement contains a financial covenant that requires APEI to maintain a Total Net Leverage Ratio of no greater than 2.0 to 1.0.

As of December 31, 2021, the Company was in compliance with all debt covenants.

Long-term debt consists of the following as of December 31, 2021 (in thousands):

Credit agreement $ 172,813

Deferred financing fees ( 12,292 )

Current portion ( 8,750 )

Scheduled maturities of long-term debt at December 31, 2021 are as follows (in thousands):

Maturities of Long-Term Debt Loan Payments

Thereafter 129,063

Total $ 172,813

Derivatives and Hedging

The Company is subject to interest rate risk as all outstanding borrowings under the Credit Agreement are subject to a variable rate of interest.

On September 30, 2021, the Company entered into an interest rate cap agreement to manage its exposure to the variable rate of interest with a total notional value of $ 87.5 million.

This interest rate cap agreement, designated as a cash flow hedge, provides the Company with interest rate protection in the event the LIBOR rate exceeds 2.0 %.

The interest rate cap is effective October 1, 2021 and will expire on January 1, 2025.

Changes in the fair value of the interest rate cap designated as a hedging instrument that effectively offset the variability of cash flows associated with our variable-rate, long-term debt obligations are reported in accumulated other comprehensive income.

These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

At December 31, 2021, the $ 0.5 million fair value of the interest rate cap is recorded in other assets in the Consolidated Balance Sheets.

The unrealized gain of $ 0.1 million is included within our other comprehensive income.

As of December 31, 2021, the Company expects to reclassify immaterial gains included in accumulated other comprehensive income (loss) into earnings during the next 12 months.

The components of income tax expense were as follows (in thousands):

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Stock option compensation expense 63 159

Net operating loss — 3,338

Total gross deferred tax assets 7,165 29,862

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Goodwill and intangibles ( 1,419 ) ( 1,302 )

Other comprehensive income- unrealized gain on interest rate cap — ( 67 )

Total deferred tax liabilities ( 9,209 ) ( 34,178 )

Deferred tax liabilities, net $ ( 2,580 ) $ ( 5,059 )

At December 31, 2021, the Company had net operating loss carryforwards and capital loss carryforwards of $ 15.9 million and $ 1.8 million, respectively, which are available to offset future taxable income.

The capital loss carryforwards will expire in 2026 while the net operating loss can be carried forward indefinitely.

The Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Section 382 of Internal Revenue Code of 1986, as amended.

Income tax expense differs from the amount of tax determined by applying the United States Federal income tax rates to pretax income and loss due to the application of state apportionment laws, permanent tax differences, and other temporary differences (in thousands):

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$ 5,187 34.13 % $ 7,020 27.17 % $ 7,511 29.73 %

Permanent differences in the table above are mainly attributable to executive and stock compensation, minority investment losses including other-than-temporary impairment charges, nondeductible meals and entertainment expenses, and non-deductible employer contributions to the American Public Education, Inc.

Permanent differences in the table above are mainly attributable to executive and stock compensation, minority investment losses, nondeductible meals and entertainment expenses, and non-deductible employer contributions to the American Public Education, Inc.

Employee Stock Purchase Plan.

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The Company made discretionary contributions to the plan of $ 3.7 million, $ 4.2 million, and $ 5.1 million for the years ended December 31, 2019, 2020, and 2021, respectively.

In November 2007, the Company adopted the American Public Education, Inc.

Employee Stock Purchase Plan, or the ESPP, which was implemented effective July 1, 2008 with quarterly enrollment periods.

The Company has established the American Public Education, Inc.

Employee Stock Purchase Plan, or the ESPP, with quarterly enrollment periods.

Eligible participants may only enter the plan and establish their withholdings at the start of an enrollment period.

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The total value of contributions per participant may not exceed $ 21,000 annually or the value of the common stock purchased per participant cannot exceed $ 25,000 .

There were initially 100,000 shares of common stock available for purchase by participating employees under the ESPP.

On June 13, 2014, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares of the Company’s common stock available for issuance under the plan by 100,000 shares, extend the term of the ESPP to March 7, 2024, and make other administrative changes.

On May 15, 2020, the Company’s stockholders further amended the ESPP to increase the number of shares of the Company’s common stock available for issuance under the plan by an additional 100,000 shares and extend the term of the ESPP to May 15, 2030.

In 2014 and again in 2020 the Company’s stockholders approved amendments to the plan increasing the number of shares available for purchase by participating employees and extended the term of the ESPP.

The term of the ESPP is now extended to May 15, 2030, and at December 31, 2021 there remain 80,926 shares available for purchase under the ESPP.

Shares purchased in the open market for issuance to employees pursuant to the plan for the years ended December 31, 2019, 2020, and 2021 were as follows:

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Non vested, December 31, 2020

526,800 $ 26.43

Shares granted 343,851 29.50

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Non vested, December 31, 2021

506,787 $ 27.68

There were 37,738 , 48,434 , and 3,233 shares of restricted stock or restricted stock units excluded in the computation of diluted net income per common share for the years ended December 31, 2019, 2020, and 2021, respectively.

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Treasury constant maturity for the same maturity as the estimated life of the option , quoted on an investment basis in effect at the time of grant for that business day.

Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not necessarily indicative of the reasonableness of the original estimates of fair value made under FASB ASC Topic 718.

Estimates of fair value are subjective and are not intended to predict actual future events, and

subsequent events are not necessarily indicative of the reasonableness of the original estimates of fair value made under FASB ASC Topic 718.

Prior to 2012, the Company issued a mix of stock options and restricted stock, but ceased issuing options until 2019.

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Weighted-average fair value of options granted during the year $ 13.91 $ 18.99 $ 15.13

There were no anti-dilutive stock options excluded from the calculation of diluted net income per common share for the year ended December 31, 2018.

For the years ended December 31, 2019, 2020, and 2021, there were 43,134 , 60,504 , and 101,520 anti-dilutive stock options excluded from the calculation of diluted net income per share, respectively.

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The Company recognized income tax benefits of $ 2.0 million, $ 1.9 million, and $ 2.3 million from vested restricted stock and restricted stock units for the years ended December 31, 2019, 2020, and 2021, respectively.

During the year ended December 31, 2018, the Company did no t repurchase shares of the Company’s common stock, par value $ 0.01 per share, other than shares deemed to have been repurchased to satisfy employee minimum tax withholding requirements in connection with the vesting of restricted stock grants.

During the year ended December 31, 2019, the Company repurchased 1,416,304 shares of the Company’s common stock, par value $ 0.01 per share.

The chart and footnotes below provide the detail as to the Company’s repurchases during the period.

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)

January 1, 2019 — $ — — — $ 148,008

January 1, 2019 – January 31, 2019 — — — 283,876 148,008

February 1, 2019 – February 28, 2019 — — — 283,876 148,008

March 1, 2019 – March 31, 2019 — — — 283,876 148,008

April 1, 2019 – April 30, 2019 — — — 284,252 148,008

May 1, 2019 – May 31, 2019 129,973 29.38 129,973 299,060 31,181,393

June 1, 2019 – June 30, 2019 197,488 29.03 197,488 299,060 25,448,317

July 1, 2019 – July 31, 2019 218,699 30.79 218,699 299,436 18,714,574

August 1, 2019 – August 31, 2019 220,000 28.16 220,000 299,436 12,519,374

September 1, 2019 – September 30, 2019 199,921 24.12 199,921 352,104 7,697,280

October 1, 2019 – October 31, 2019 229,849 22.34 229,849 352,480 2,562,453

November 1, 2019 – November 30, 2019 110,374 23.21 110,374 352,480 673

December 1, 2019 – December 31, 2019 110,000 27.23 110,000 352,480 22,004,700

Total 1,416,304 $ 26.83 1,416,304 352,480 $ 22,004,700

During the year ended December 31, 2020, the Company repurchased 547,563 shares of the Company’s common stock, par value $ 0.01 per share.

The chart and footnotes below provide the detail as to the Company’s repurchases during the period.

Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) (3)

January 1, 2020 — $ — — — $ 22,004,700

January 1, 2020 – January 31, 2020 198,300 27.10 198,300 284,723 16,630,770

February 1, 2020 – February 29, 2020 179,263 24.51 179,263 284,723 12,237,034

March 1, 2020 – March 31, 2020 170,000 22.59 170,000 284,723 8,396,734

April 1, 2020 – April 30, 2020 — — — 284,723 8,396,734

May 1, 2020 – May 31, 2020 — — — 299,843 8,396,734

June 1, 2020 – June 30, 2020 — — — 312,816 8,396,734

July 1, 2020 – July 31, 2020 — — — 317,924 8,396,734

August 1, 2020 – August 31, 2020 — — — 331,841 8,396,734

September 1, 2020 – September 30, 2020 — — — 331,841 8,396,734

October 1, 2020 – October 31, 2020 — — — 331,841 8,396,734

November 1, 2020 – November 30, 2020 — — — 331,841 8,396,734

December 1, 2020 – December 31, 2020 — — — 331,841 8,396,734

Total 547,563 $ 24.85 547,563 331,841 $ 8,396,734

(1) On December 9, 2011, our Board of Directors approved a stock repurchase program for our common stock, under which we could annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

On December 9, 2011, the Company’s Board of Directors approved a stock repurchase program for our common stock, under which the Company could annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions.

The stock repurchase program does not obligate us to repurchase any shares, may be suspended or discontinued at any time, and is funded using our available cash.

The stock repurchase program does not obligate the Company to repurchase any shares, may be suspended or discontinued at any time, and is funded using our available cash.

On May 2, 2019, the Company’s Board of Directors authorized the repurchase of up to $ 35.0 million of the Company’s shares of common stock, and on December 5, 2019, the Board approved an additional authorization of up to $ 25.0 million of shares.

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The Company has no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time.

The authorization under this program is in addition to the Company’s repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plan.

(3) During the years ended December 31, 2018, 2019, and 2020, the Company was deemed to have repurchased 66,088 , 83,214 , and 78,847 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

These repurchases were not part of the stock repurchase programs authorized by our Board of Directors as described in footnotes 1 and 2 of this table.

The authorization under this program is in addition to the Company’s repurchase program under which the Company may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plan.

During the years ended December 31, 2019 and 2020 the Company repurchased 1,416,304 and 547,563 shares of the Company’s common stock, respectively, for approximately $ 39.1 million and $ 13.6 million, respectively.

During the year ended December 31, 2021, the Company did not repurchase shares of common stock.

As of December 31, 2021, the Company has remaining $ 8.4 million under its share repurchase authorization.

During the years ended December 31, 2019, 2020, and 2021, the Company was deemed to have repurchased 83,214 , 78,847 , and 99,469 shares, respectively, of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

These repurchases were not part of the stock repurchase programs authorized by our Board of Directors as described above.

Contingencies

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Concentration

APUS students utilize various payment sources and programs to finance their education expenses, including funds from:

Our students utilize various payment sources and programs to finance their education expenses, including funds from:

Department of Defense, or DoD, tuition assistance programs, or TA, education benefit programs administered by the U.S.

Department of Veteran’s Affairs, or VA, and federal student aid from Title IV programs, as well as cash and other sources.

Reductions in or changes to TA, VA education benefits, Title IV programs and other payment sources could have a significant impact on the Company’s operations.

As of December 31, 2021 approximately 63 % of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

Active duty military students generally take fewer courses per year on average than non-military students.

A summary of APEI Segment revenue derived from students by primary funding source for the years ended December 31, 2018, 2019, and 2020 is as follows:

A summary of APUS Segment revenue derived from students by primary funding source is as follows:

Year Ended December 31,

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Cash and other sources 13 % 14 % 14 %

A summary of HCN Segment revenue derived from students by primary funding source for the years ended December 31, 2018, 2019, and 2020 is as follows:

A summary of RU Segment revenue derived from students by primary funding source is as follows:

Year Ended December 31,

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VA education benefits 2 % 2 % 2 %

A reduction in, or change to, any of these programs could have a significant impact on the Company’s operations and financial condition.

A summary of HCN Segment revenue derived from students by primary funding source is as follows:

Year Ended December 31,

2019 2020 2021

Title IV programs 80 % 82 % 81 %

Cash and other sources 18 % 16 % 17 %

VA education benefits 2 % 2 % 2 %

Reductions in or changes to TA, VA education benefits, Title IV programs and other payment sources could have a significant impact on the Company’s operations and financial condition.

Segment Information

The Company has two operating segments that are managed in the following reportable segments:

• American Public Education Segment, or APEI Segment, and

• Hondros College of Nursing Segment, or HCN Segment.

In accordance with FASB ASC Topic 280, Segment Reporting , the chief operating decision-maker has been identified as the Chief Executive Officer.

The Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for APEI and HCN.

In connection with the Rasmussen Acquisition (as further described in Note 3, “Acquisition Activity”), the Company revised its reportable segments to reflect the manner in which the chief operating decision-maker evaluates performance and allocates resources, and to include RU as a separately reportable segment.

Prior to the third quarter of 2021, the Company had two reportable segments:

the American Public Education, Inc.

Segment, or APEI Segment, and the Hondros College of Nursing, or HCN Segment.

Post-acquisition, the Company has three reportable segments:

the APUS Segment, which was previously included within the former APEI Segment;

the RU Segment;

and the HCN Segment.

The APEI Segment previously reported the results of both APUS and remaining unallocated Company expenses.

Prior periods have been updated to conform to the revised presentation.

In accordance with FASB ASC 280, Segment Reporting , the chief operating decision-maker has been identified as the Company’s Chief Executive Officer.

The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APUS, RU, and HCN Segments.

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through December 31, 2021.

The Company did not consolidate the financial results of the RU Segment prior to the Closing Date.

A summary of financial information by reportable segment is as follows (in thousands):

1 unchanged sentence

2019 2020 2021

American Public Education Segment

$ 260,062 $ 256,899 $ 285,766

Hondros College of Nursing Segment

37,625 29,479 36,091

Intersegment elimination — ( 108 ) ( 72 )

APUS Segment $ 257,050 $ 285,938 $ 283,700

RU Segment — — 89,483

HCN Segment 29,479 36,091 45,803

Corporate and Other ( 259 ) ( 244 ) ( 183 )

Total Revenue $ 286,270 $ 321,785 $ 418,803

Depreciation and Amortization

American Public Education Segment

$ 16,175 $ 14,659 $ 12,364

Hondros College of Nursing Segment

1,326 937 620

APUS Segment $ 14,617 $ 12,323 $ 9,064

RU Segment — — 7,989

HCN Segment 937 620 738

Corporate and Other 42 41 $ 41

Total Depreciation and Amortization $ 15,596 $ 12,984 $ 17,832

Income (loss) from operations before interest income and income taxes

American Public Education Segment

$ 28,561 $ 23,522 $ 24,034

Hondros College of Nursing Segment

3,965 ( 10,768 ) 722

Intersegment elimination — 2 1

Total income from operations before interest income and income taxes $ 32,526 $ 12,756 $ 24,757

Interest Income, Net

American Public Education Segment

$ 2,867 $ 3,866 $ 1,075

Hondros College of Nursing Segment

Total Interest Income, Net $ 2,915 $ 3,908 $ 1,092

Income (loss) from operations before interest and income taxes

APUS Segment $ 37,225 $ 43,438 $ 51,050

RU Segment — — 1,630

HCN Segment ( 10,768 ) 722 1,829

Corporate and Other ( 13,701 ) ( 19,403 ) ( 24,138 )

Total income from operations before interest and income taxes $ 12,756 $ 24,757 $ 30,371

Interest income (expense)

APUS Segment $ 473 $ 303 $ 210

RU Segment — — 132

HCN Segment 42 17 9

Corporate and Other 3,393 772 ( 4,628 )

Total Interest income (expense) $ 3,908 $ 1,092 $ ( 4,277 )

Income Tax Expense (Benefit)

American Public Education Segment

$ 8,267 $ 7,754 $ 6,827

Hondros College of Nursing Segment

1,020 ( 2,567 ) 193

APUS Segment $ 10,312 $ 11,127 $ 14,023

RU Segment — — 509

HCN Segment ( 2,567 ) 193 522

Corporate and Other ( 2,558 ) ( 4,300 ) ( 7,543 )

Total Income Tax Expense $ 5,187 $ 7,020 $ 7,511

Capital Expenditures

American Public Education Segment

$ 8,793 $ 6,479 $ 4,724

Hondros College of Nursing Segment

APUS Segment $ 6,472 $ 4,724 $ 3,902

RU Segment — — 5,987

HCN Segment 776 202 1,939

Corporate and Other 7 — —

Total Capital Expenditures $ 7,255 $ 4,926 $ 11,828

Effective January 1, 2019, the APEI Segment began charging the HCN Segment for the value of courses taken by HCN Segment employees at APUS.

The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands):

As of December 31,

American Public Education Segment

$ 305,896 $ 322,544

Hondros College of Nursing Segment

49,001 48,474

APUS Segment $ 112,461 $ 126,926

RU Segment — 429,299

HCN Segment 48,474 51,936

Corporate and Other 210,083 117,447

Total Assets $ 371,018 $ 725,608

Subsequent Events

On March 1, 2021, we completed an underwritten public offering of 3,680,000 shares of our common stock at a price to the public of $ 25.00 per share for estimate aggregate net proceeds of $ 86.4 million, after deducting underwriting discounts and commissions and other estimated offering expenses.

On January 1, 2022, the Company completed its acquisition of GSUSA.

Quarterly Financial Summary (unaudited)

12 unchanged sentences

Revenue $ 88,541 $ 78,014 $ 98,248 $ 154,000

Income from operations before income taxes 3,395 9,220 3,429 9,805

Net income 2,420 6,689 2,642 7,071

Net income per common share:

Income (loss) from operations before income taxes 10,751 1,999 ( 43 ) 13,387

Net income (loss) 8,107 531 ( 267 ) 9,381

Net income (loss) per common share:

Basic $ 0.5 $ 0.03 $ ( 0.01 ) $ 0.50

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data